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  • A combination of supporting factors assisted USD/CAD to gain strong traction on Wednesday.
  • Coronavirus jitters weighed on investors’ sentiment and drove haven flows towards the USD.
  • A steep fall in oil prices undermined the loonie and remained supportive ahead of the BoC.

The USD buying interest picked up pace since the early European session and pushed the USD/CAD pair to near two-week tops, closer to mid-1.3200s in the last hour.

Following a brief consolidation earlier this Wednesday, the pair caught some aggressive bids and built on the previous day’s late rebound of around 40 pips from the 1.3142 area. The strong move up was sponsored by a combination of factors – resurgent US dollar demand and tumbling crude oil prices.

Concerns that the continuous surge in new coronavirus cases will prompt fresh lockdown measures and hinder the already tepid recovery took its toll on the global risk sentiment. This was evident from a selloff in the equity markets, which forced investors to take refuge in the safe-haven greenback.

Meanwhile, the second wave of COVID-19 infections globally fanned fears of weaker fuel demand. This, along with the anti-risk flow triggered a fresh leg down in oil prices, which undermined the commodity-linked currency – the loonie – and provided an additional boost to the USD/CAD pair.

Apart from this, possibilities of some short-term trading stops being triggered above the 1.3200 round-figure mark further contributed to the USD/CAD pair’s bullish momentum. It, however, remains to be seen if bulls are able to capitalize on the move or opt to take some profits off the table.

Wednesday’s key focus will be on the latest monetary policy update by the Bank of Canada (BoC), due later during the early North American session. The BoC is not expected to announce any major policy shift. Hence, the updated economic projection and the post-meeting press conference might assist investors to determine the next leg of a directional move for the USD/CAD pair.

Technical levels to watch